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Simplectica Covariance Matrix - Daily

Simplectica Covariance Matrix - Daily by Simplectica

Simplectica Covariance Matrix (SCM) is a full rank, open-to-close covariance matrix for all US equities updated daily.

In investment portfolio management, every investor generally wishes to obtain the highest possible expected returns for a given level of risk, as represented by the volatility of the returns of the investor’s portfolio. Therefore, in order to make rational capital allocation decisions, the investor must predict the volatility of any given portfolio. In turn, this requires knowledge of the covariance matrix of the returns of all available securities.

Simplectica Covariance Matrix (SCM) is the first commercially available dataset providing an accurate measurement of realized single-ticker variance and realized pairwise covariance for all pairs of tickers in the stock market.

Unlike multi-factor models, which explain volatility and correlations through a small number of theoretically determined factors (e.g. market-wide returns, momentum, size, .etc) resulting in a low-rank approximation, SCM directly measures the full-rank covariance structure of the market.

On account of the relative stability of this covariance structure over time, SCM, though retrospective in nature, can be used with great efficacy to model portfolio volatility and compress it though hedging.